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Profits to Overseas Investors Used for Direct Investment now Free from Withholding Tax

Profits to Overseas Investors Used for Direct Investment now Free from Withholding Tax

The Circular states that, where profits distributed by a resident enterprise within the territory of China to an overseas investor are used by such investor for direct investment into the encouraged-category of investment projects in the PRC, the tax deferral policy shall apply, without the collection of the withdrawing tax on a temporary basis, if relevant requirements are fulfilled.

Overseas investors temporarily not subject to the withholding tax must meet four requirements, whereby it is also specified the relevant "profits obtained by the overseas investor are returns of equity investment, such as dividends and bonus, generated from retained income that has been actually distributed by the Chinese resident enterprise to the investor".

Furthermore, the Circular states that, if an overseas investor is eligible for but does not enjoy such preferential policy in fact, it could file an application for enjoying the policy within three years from the date the relevant tax payment is made in practice, and the amount of tax paid will be refunded.